Publication: ComputerWorld USA
Gerry Clark on Major Trends in Outsourcing
Richard Mills, Chairman
As sourcing advisory firm TPIís regional head for Southeast Asia, Gerry
Clark brings years of experience in outsourcing in the Asia-Pacific
region, India and China. He spoke with Richard Mills about trends in the
offshore outsourcing industry.
are the major trends you are seeing in the large global outsourcing deals
you are advising on? Contract duration is coming down. The first- and
second-generation deals were seven to 10 years. They are now closer to five
to seven years. This results in smaller total contract value.
trend is the proliferation of offshoring in outsourcing contracts. Up to 50%
of the transactions TPI is involved in have an offshore component. Clients
are more predisposed to look at and engage with service providers who have
an offshore service delivery capability. This, in turn, is also reducing
total contract value.
are also advising on more multi vendor deals, as well as selective sourcing
deals, rather than single vendor deals. Clients are seeing value in
best-of-breed solutions. As a consequence, it is putting more pressure on
vendor management and governance.
final area we are seeing a trend is the continued lack of appetite for BPO
[business process outsourcing] generally in the outsourcing market and large
deals in particular. Yes, it is happening, but not to the extent that the
so-called market research firms have been predicting for some time. TPI sees
a disconnect between service provider capability, which seems to be focused
mainly on a "lift and shift" approach, compared to clientsí
needs, which go beyond that paradigm.
are your thoughts on growth in back-office outsourcing? All of the
market indicators show these services growing faster than any of the
traditional outsourcing services like IT or contact center services. We are
still not seeing the hyper growth that has been predicted. It is certainly
growing, but from a small base. So if you start off with five units and you
double it, you got only 10, which is still not big compared to the IT
market, which might be a billion. It probably is not growing as fast as some
of the market analysts and researchers would lead you to believe.
IBM and other organizations are providing a full range of services, even
call center work. Do you think those organizations are suitable to provide
such a wide range? I think so. The big firms are well established and
have strong processes in place that are very transferable. Global companies
are glad to have fewer vendors handling more functions.
of the other service providers have taken a very niche view. They say,
"We donít want to do finance or HR or procurement; all we want to do
is mortgage processing," as an example.
the larger firms have been investing in global service delivery capability
to extend their global footprint.
U.S. has been the primary source of offshore outsourced work to this point.
Who else is sending work abroad? It is predominantly the U.S. and
Europe. These are still by far the markets that dominate in the amount of
work that is being exported offshore.
you say India is still the premier destination for companies sending work
Indiaís leading the pack, but the landscape is changing quickly. Every
month, there are new countries coming into play with new offerings. The
landscape is getting wider, deeper and more competitive. This is certainly a
good environment for the large global organization my firm works with.
people say India is becoming too expensive, especially for new entrants.
What do you see? India and a lot of countries are facing escalation
in costs. I donít think India is particularly unique in that. If you look
at China, inflation in some areas is pretty substantial as well.
the cost benefit is still important, it is not just about cost anymore.
Today, it has to have the benefit of scale attached to it as well. It is
very difficult to take a piece of work which has five FTEs [full-time
equivalents] and say we want to do it for 20% less. If itís got 500 FTEs,
then you have potential, because you have economies of scale to re-engineer
the way you do things. India has developed the know-how to re-engineer
processes so savings can still come out. Countries that are newer to the
outsourcing business are not yet at that stage.
seems that no other countries besides India has been good at promoting
itself as a BPO destination to global companies. What should they do? Differentiation
seems to be the direction that
most are taking. The big attraction offshore used to be lower cost. Today,
that is not good enough because they themselves are facing increased
inflation in labor, real estate and infrastructure cost. Even countries like
India have to think about what else they can do to be successful.
countries have adapted a broad strategy like India, and others are adopting
a narrow strategy like Singapore.
Singapore is a high-cost country and is not looking to be a global BPO
center. But it is trying to attract some of the multinationals to come and
do high-end services in areas such as biotech. Differentiation will be the
Richard Mills is chairman of Chalre Associates, a executive search
and management consulting firm working in the emerging economies of Asia.
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